New Worker Classification Rules Proposed

There could soon be a new way to determine whether workers are employees or independent contractors. 

The Labor Department’s Wage and Hour Division wants to rescind the current standard for determining a worker’s status — an “economic reality test” involving five factors — with a new test that looks at the totality of a worker’s relationship with an employer. These planned changes to the Fair Labor Standards Act (FLSA) were spelled out in an advance notice in the Federal Register. 

Under the proposed economic test, factors such as the opportunity for profit or loss, the degree of control by the employer over the work and whether the work is an “integral part of the employer’s business” will help guide the determination, the notice explains. 

The current standard — which was established in a 2021 rulemaking — set forth five factors to determine whether someone was a contractor or an employee. Two of those factors — the level of control an employer exerts over the work and the worker’s opportunity for profit or loss — were designated “core factors” that could tip the scales for any economic test. 

No Extra Weight 

The Labor Department contends that “giving extra weight to two factors cannot be harmonized with decades of case law and guidance … explaining that the economic reality test is a multifactor test in which no one factor or set of factors automatically carries more weight and that all relevant factors must be considered.”  

Toward that end, the proposal returns the economic test to a totality-of-the-circumstances analysis “that has a refined focus on whether each factor shows the worker is economically dependent upon the employer for work versus being in business for themselves.” 

“Changes to the definition of employee under the Fair Labor Standards Act always have significant implications for the transportation industry, including the Postal Service surface transportation network,” said NSRMCA Executive Director Greg Reed. “The Department of Labor’s proposed regulation indicates a return to an expansive, and amorphous, definition of who is an employee under the law. Transportation companies should pay close attention to this regulation to mitigate liability at both the federal and state levels if it is adopted.” 

“This proposal, if finalized, will provide more consistent guidance to employers as they determine whether workers are economically dependent on the employer for work or are in business for themselves, as well as useful guidance to workers on whether they are correctly classified as employees or independent contractors,” reads the notice. 

A 45-day comment period will open when the notice is formally published Oct. 13.